Best ways to trade Forex

There has been quite a bit of hype recently about automated Forex system trading. It seems that a new Forex trading robot that makes trades automatically is released onto the market every week. Because I trade Forex for a living, I’m always looking for new Forex trading software that can make winning trades consistently, even through risky financial conditions.

Here are the top 3 things you should look for when evaluating this type of software if you want to make good money in automated Forex system trading:

1) How Does The Forex Software Perform On Historical Back-tests?

Forex software packages that integrate with trading platforms such as MetaTrader 4 can be run against historical data to simulate the decisions and order placements the automated software would have taken. This can provide a reliable gauge as to how the software will perform in the future.

A vital statistic to look for in historical back-test results is the win-loss ratio. This will tell you how many times a profitable trade is made in proportion to how many times a losing trade is made. For example, if the automated Forex robot made ten trades, with 7 winners and 3 losers, your win to loss ratio would be 7 to 3. Thus, the software made 70% winning trades against historical data.

2) How Well Does The Software Perform on Forward Tests?

Forward test performance is even more important than back-test performance. In current market conditions, does the software perform well and make profitable trades? If the Forex software does not perform well under live trading conditions, back-test results are generally meaningless.

Demo accounts, where you make live trades but don’t risk real money, are typically made available by most Forex trading brokers. Due to the inherent risk of Forex trading, it is strongly recommended that a new trader use a demo account for the first few months to get a feel for the win-loss ratio performance of the automated Forex system trading software. Ideally, the Forex software will match or outperform the back-test results when trading on a live account.

3) Automated Risk Scaling

Possibly the most important factor to look for when evaluating automated Forex system trading software is built-in risk scaling, also known as automated risk scaling. To prevent the software from trading in risky conditions, good Forex trading software should have built-in risk filters and indicators. This will help minimize automated trades during unstable market periods and reduce losing trades.